Agent of Record vs. Employer of Record: Key Differences Explained

Agents of Record (AOR) and Employers of Record (EOR) are key workforce services businesses use to manage hiring processes and administration. While their core functions may seem similar at first glance, they’re quite different. While an AOR focuses on hiring contractors, an EOR works with full-time employees. As such, their legal responsibilities vary considerably. 

For businesses expanding globally, working with an AOR or EOR is immensely helpful for navigating complex compliance requirements and avoiding the legal repercussions of any mistakes. When deciding between the two, it’s vital to clearly understand the roles and responsibilities of an AOR vs EOR. This guide will break down the main differences and explain the pros and cons of each choice. 

What is an Agent of Record?

An Agent of Record (AOR) classifies, engages, and pays freelancers and independent contractors (1099 workers) on behalf of a company. It handles tasks like correctly classifying your independent contractor network under local laws, the legal aspects of freelancer/contractor agreements, tax obligations, and compliance with local labor regulations. It also serves as your representative in case of any inquiries or disputes with local authorities. 

What is an Employer of Record?

An Employer of Record (EOR) classifies, hires, and manages full-time talent (W-2 workers) on behalf of a company. It handles the entire gamut of activities related to managing a full-time workforce, including tax deductions, benefits administration, payroll management, and labor law compliance. It also provides the expertise and legal knowledge of drafting employment contracts and agreeing on suitable compensation and benefits. It can handle the legal aspects of hiring and managing contractors. Essentially, it operates as your dedicated HR department in the new market without setting one up yourself. 

Key Differences Between AOR and EOR

The key differences between AOR and EOR are listed below.

Worker Type

An AOR primarily works with independent contractors (1099 workers). It handles all matters related to contractors’ classification and payment (including taxes) in line with local laws. 

An EOR, on the other hand, manages full-time and part-time employees (W-2 workers). It covers payroll processing, benefits, employment contracts, tax withholdings, and other HR-related activities as per the local labor laws. 

Legal Employer

When working with an AOR, the client remains the legal employer of the contractors. The AOR simply handles compliance and payment.

An EOR, however, is legally the party hiring the employees for the company. As such, it assumes full responsibility for compliance.

Responsibility

An AOR’s role is simple—it handles contracts, classification, onboarding process, and payments for contractors on the company’s behalf. It does not take on any other employment-related tasks. 

An EOR, on the other hand, handles the full spectrum of HR services in the country your company has expanded to. This includes contracts, payroll, benefits, taxes, labor compliance, and all other matters related to HR and employment.

Flexibility

An AOR is ideal for businesses with fluctuating short-term employment needs. When they want to quickly onboard freelancers or contractors while retaining full legal control, an AOR is the way to go. An AOR can also help set up a local entity, which may be necessary in some countries for working with contractors. 

An EOR is a legal employer in its own right, whose services include handling contracts, managing employee benefits, and ensuring legal compliance. For businesses that wish to onboard long-term employees and contractors in a new market, an EOR can handle all HR-related tasks. In addition, working with a good EOR means there is no need to establish a local legal entity. This is especially useful if the business expands to a different country with its own labor laws. 

Pros and Cons of AOR and EOR

We’ve broken down the pros and cons of AOR and EOR to provide a more informed choice.

AOR or EOR: How To Know What’s Right for Your Business?

It can be complicated to choose between AOR and EOR when deciding how to manage hiring for your business. To make the best choice, we recommend asking yourself the following questions:

1. Do I want to work purely with contractors or also with full-time employees? An AOR will only help you hire contractors. If you plan to expand your full-time team in the new market, working with an EOR is advisable. 
2. Do I want my own legal entity when I hire in the new market? An AOR can help you set up a new legal entity in your name for contracting purposes. An EOR, however, is its own legal entity. 
3. How much control do I want over my hires? With an AOR, the day-to-day control over the contractors you work with remains on you. An EOR, however, handles all aspects of hiring and managing contractors. 
4. How much flexibility do I want regarding scaling up or down? With AORs, it is easy to add to or downsize your contractor team as needed. With EORs, however, since there are full-time employees involved, this can be more difficult.
5. How much accountability do I want for the people I hire? With an AOR, the burden of legal accountability remains on you in case one or more of your contractors creates trouble. An EOR, however, retains full legal accountability. 

Ultimately, deciding whether an AOR or an EOR is right for your hiring and compliance needs comes down to your workforce model and how you see it evolving in the new market. With labor laws differing widely from country to country, we highly recommend working with partners that have a sufficient understanding of those laws and can guide you through them. Both AORs and EORs will give you that legal support — and you can make the most of global talent while confident that you are always within the letter of the law. 

More Readings on EOR

• How Much Does An Employer Of Record Cost?
• Best Employer of Record (EOR) Services